KUALA LUMPUR: Affin Hwang Capital Research said the telco sector could be negatively affected by the removal of the Goods and Services Tax in place of a sales and service tax, should there not be any tax rebates.
The research house said that while the details are still vague, it could affect the revenue and profits for the telcos' prepaid business.
"That said, we acknowledge that the situation is still fluid and any impact on earnings will likely be manageable, partly cushioned by improvement in consumer sentiments arising from an absence of GST."
Affin Hwang Research noted that the reintroduction of SST may create uncertainties in the prepaid segment. It noted that, previously, the government had introduced a mechanism where the consumer received a rebate for GST paid on prepaid services.
It said DiGi has the highest exposure to the prepaid segment with 59% of its 2017 revenue, followed by Maxis and Axiata.
It added that it expects the direct earnings impact to be management considering the high profit margins, resilient earnings trend during the 2015-16 period and expected improvement in consumer sentiment arising from lower GST rate.
"All in, the reintroduction of SST may have a neutral (if the government provides rebates) or negative impact to the telco operators."
The research house maintained neutral on the sector.
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